By Roznah Abdul Jabbar
Home seekers these days are seeing their home-ownership hopes dashed by a range of obstacles, and fingers have been pointed in various directions as to who is to blame for the current situation. Banks, in particular have been copping most of the flak, being criticised by developers, house buyers and even government representatives for rejecting home loans in droves.
However, laying the blame of reduced property transactions solely on financial institutions is an unfair assesment, says the National House Buyers Association (HBA). Instead, the predicament should be ascribed to the steep house prices instead.
The association’s Honorary Secretary-General Chang Kim Loong said that the problem of low loan approval rates is compounded by the fact that today’s property prices are far beyond the reach of the younger generation, as well as the lower- and middle-income segment which comprises at least 60% of the general population.
“The exorbitant house prices currently far exceed the household income of an average family – a mismatch,” he pointed out.
He said that banks should not be expected to approve loans for those who do not meet the minimum criteria, have no documentation of regular income, have no tax declarations or are “blacklisted”, as they must abide by Bank Negara Malaysia’s (BNM) stringent lending policies.
“Developers who still attempt to sell properties at a token “downpayment”, thus enticing naive and unwary house buyers, are to be blamed for the current scenario,” he opined.
Chang said, based on the methodology used by prominent organisations such as World Bank and Harvard University, a property is considered to be affordable if it costs three times or less of the buyer’s annual household income.
He added that the median household income for Malaysia in 2014 was only RM4,258. This translates to an annual household income of only RM51,096.
“Multiplied by three, the maximum property price considered to be affordable is RM153,288. Today, even a new studio unit in Cyberjaya measuring about 600sq ft costs more than RM300,000,” he highlighted.
Additionally, Chang pointed out that Malaysia is currently experiencing a slowdown in economy and overall market sentiments.
He said in such situations, banks can rightfully be expected to practise extra prudence and caution in their loan approval process, which they should have inculcated after the 1997
“Banks will always want to give loans to qualified applicants, but the borderline cases, which might have been approved during the “good times”, will probably not be approved in the current economic climate,” he said.
Datuk Mani Usilappan, former Director General of Valuation and Property Services Department, said home loans are given by the lending institutions based on several prudent and risk-identified measures.
“I believe there could have been a number of rejections purely based on the nett income and ability-to-pay principles adopted by prudent lending criteria,” he said.
He explained that BNM has guidelines on the loan ratios and the rest is left to banks to determine who qualifies and who does not.
“By the same logic and token, if banks are not prudent and lend too much to buyers who are [financially] weak, there will be an increase of defaulters and more foreclosures,” he said.
He added that a high spate of foreclosures will generate an unhealthy market and might cause a vicious downward spiralling of property prices, subsequently affecting the whole property market.
“I am all for prudent screening of those eligible, limiting the number of houses a person can own and careful risk management measures which involve a careful consideration of property prices
before money is lent out,” Mani said.
Immediate past president of the Malaysian Institute of Estate Agents (MIEA), Siva Shanker, said that the current rejection rate is only at 18%, which is lower than what was reported recently. He said it is due to buyers who are adamant to apply for home loans even when they are aware they are ineligible for it.
“Loan rejections are due to a few reasons such as the loan application amount not following the rule of thumb, and these rejection cases contribute to the statistics,” he said.
Recently, it was reported that the Real Estate and Housing Developers’ Association (Rehda) stated that BNM’s tough credit checks and loan rejections are causing developers to delay their project launches, especially affordable houses.
Rehda’s president Datuk Seri Fateh Iskandar Mohamed Mansor urged BNM to review its policy, especially the ones that affect lower income groups looking to purchase their first homes.
The Association of Banks in Malaysia (ABM) refuted the claims and stated that banks are fully supportive of the government’s various initiatives to assist households from low- and middle-income groups to purchase their own homes.
ABM’s executive director Chuah Mei Lin said banks are continually reviewing their strategies and engaging with the authorities to boost home ownership in the country while reining in household debt.
“The rejection rates for housing loans have been on a declining trend from 25% in 2012 to 18 per cent in 2014, reflecting borrowers and lenders adjusting better to the affordability assessments,” she said in a statement last week.